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Social Studies of the New
Retirement
Social Studies of Retirement
Calculus of Retirement1
Rethink Retirement Planning
Source: 1 Adapted from: Milevsky, Moshe Arye. Calculus of retirement income financialmodels for pension annuities and life insurance. Cambridge: Cambridge UP, 2006. Print.
Calculus of Retirement
• Longevity risk
• Inflation risk
• Market risk
Rethinking Retirement Planning
Longevity Risk
95
90
85
80
75
70
FemaleMaleAge
52.61%33.44%
71.42%54.76%
84.90%73.99%
93.94%89.13%
12.03%4.34%
30.60%15.14%
Joint
68.46%
87.07%
96.07%
99.34%
15.85%
41.11%
Probability an Average 65 year-old Canadian Will Live to Age…
Source: Moshe Milevsky, The IFID Centre
Longevity Risk
Individual Aging Population Aging
Family Aging
44%24%13%7%At least one parent alive
AT AGE 60
2000196019401900
The Sixty Year Old Child
The Impact of Longevity on Family Structure
Source: P.I. Uhlenberg, Mortality Decline in the Twentieth Century and the Supply of Kin Over the Life Course, The Gerontologist, Volume 36, Issue 5, Pg. 681-685, The Gerontological Society of America, October 1996.
Family Aging
Sandwich Generation
Empty Nest:Lots of Disposable $
Sandwich Generation:$ for parents & children
Percentage Needing Assistance 75 – 85 years old
Source: U.S. Bureau of the Census, 1991 Survey of Income and Program Participation, Functional Limitations and Disability File, wave 3, unpublished tabulations.
7.0%Bathing
Dressing 5.0%
Transferring 4.8%
Toileting
Eating
3.9%
1.9%
Individual Aging: Activities for Daily Living
1%2%
65-7475-84
Eating
1%4%
65-7475-84
Toileting
3%5%
65-7475-84
Transferring
2%5%
65-7475-84
Dressing
3%7%
65-7475-84
Bathing
Change from 75 – 84 to 85+
Age Rates
Activities of Daily Living
+200%21%85+
+120%11%85+
+100%8%85+
+120%11%85+
+50%3%85+
Individual Aging
Source: U.S. Bureau of the Census, 1991 Survey of Income and Program Participation, Functional Limitations and Disability File, wave 3, unpublished tabulations.
$183A DAYAverage cost of a semi-private
room in a nursing home
$152A DAYAverage cost of a home health
aide: $19 an hour, eight hours a day
Source: The MetLife Market Survey of Nursing Home & Home Care Costs, MetLife Mature Market Institute, 2006.
Family Aging: Long-Term Care Costs
Family Aging
The majority of middle age peoplenow have more parents than they
have children.
Inflation Risk
Inflation: What Does a $1,000 Payment, Really Buy You?
35302520151051
4%2%1%0%Year #
$1,000$1,000$1,000
$1,000$1,000$1,000$1,000$1,000
$905$952$990
$861$820$780$742$706
$820$906$980
$743$673$610$552$500
$676$822$962
$555$456$375$308$253
Source: Moshe Milevsky, The IFID Centre
• Sequence of Returns Matters
Market Risk
Social Studies of Retirement
Calculus of Retirement
Rethinking Retirement Planning
Social Studies of Retirement
• Market opportunity
• Relationship management
• Solutions
Rethinking Retirement Planning
Market Opportunity
Source: Retirement Income Industry Association, Innovative Retirement Income and Old-Age Insurance Products, Retirement Engineering Inc. 2006
Shift
Late Retirement
Accumulation Pre-Retirement
Early Retirement
Hopeful Accumulation
Best-Efforts
Risk-Sharing
Guaranteed
Reliable Income
ActivityNeedsMindsetSolutionActivityActivityMindset
• by 2014, Canadians 55 and over will control almost 72% of investable assets1
Source: 1 Investor Economics Household Balance Sheet, 2006 and 2005 edition.
Canadian Retirement Market
• Significant assets are held in tax inefficient investments such as:
• $647 billion in near cash deposits with the chartered banks1
• $71.2 billion in fixed incomemutual funds2
• $12.1 billion in CSBs3
Source: 1 Department of Finance. Bank of Canada Banking and Financial Statistics Publication. 2010. Print., 2 IFIC, December 2009, 3 Department of Finance. The Fiscal Monitor. Publication. 2010. Print.
Large Market & Inefficient Investments
• 51% of Canadian retirees say they had no idea of what they wanted their retirement to look like2
Canadian Retirement Market
• by 2014, Canadians 55 and over will control almost 72% of investable assets1
Source: 1 Investor Economics Household Balance Sheet, 2003 and 2005 edition.2 Common vision lacking among retired couples: survey. Transcontinental Media inc., 2010. Web. <http://www.investmentexecutive.com/client/en/News/DetailNews.asp?id=52213&idsection=3&cat=3>.
Canadian Retirement Market
Increased Awareness of the Dangers of Retirement Raises Some Important Questions (% Agree)
76%I wonder if products exist that could help protect/manage losses
I need to rethink how aggressive or conservative my portfolio should be
66%
I wonder if I have saved enough and am prepared for retirement
62%
I question whether or not I’m getting the best advice
54%
Source: Prudential, Survey of American Pre-Retirees, 2003.
• among non retired Canadians age 35 – 55 years old 52% are not confident that their financial situation in retirement will be adequate3
• 51% of Canadian retirees say they had no idea of what they wanted their retirement to look like2
• by 2014, Canadians 55 and over will control almost 72% of investable assets1
Source: 1 Investor Economics Household Balance Sheet, 2003 and 2005 edition. 2 Common vision lacking among retired couples: survey. Transcontinental Media inc., 2010. Web. http://www.investmentexecutive.com/client/en/News/DetailNews.asp?id=52213&idsection=3&cat=3. 3 Where Has the Money Gone: The State of Canadian Household Debt in a Stumbling Economy. Publication. The Certified GeneralAccountants Association of Canada, 2009. Web.<http://www.cga-canada.org/en-ca/ResearchReports/ca_rep_2009-05_debt-consumption.pdf>.
Canadian Retirement Market
Canadian Retirement Market
Reason Standard of Living Worse than expected in Retirement
General expenses were higher than expected 38%
14%Thought government/private pension benefits would be higher
3%Unable to find employment/lost employment
3%Investments not doing as well as expected
18%Other
7%Don’t know
Source: 2002 Retirement Confidence Survey, 2002 Employee Benefit Research Institute
• Change from Linear to Cyclical
Living in Retirement
Living in Retirement: Linear
Living in Retirement: Cyclical
Relationship Management
How Old is Old?
CARP
Tim Horton's
Zellers
Movie theaters
RBC
Cdn. government
Boomers
50
60
55
65
60
55
76
(% selecting)What Triggers Retirement Readiness?
18%Achieving financial freedom
54%
Significant birthday (e.g., 55, 60, 65) 16%
Layoff or career setback 6%
Empty nest when children leave home 6%
Spouse or partner retired 6%
Becoming a grandparent 4%
Divorce 3%
Illness or health issue 15%
Death of a family member or friend 8%
Source: Ameriprise Financial, Age Wave, Ken Dychtwald, Ph.D. Harris Interactive, Inc.,The New Retirement Mindscape. Ameriprise Financial Services Inc., January 2006.
Longevity Risk:
Will I outlive my money?
Inflation Risk:
What will a dollar buy me in 20 years?
Market Risk:
Will a drop in the market set
me back?
Retirement Risks
• Averages
• Make it personal
• www.livingto100.com
• www.nmfn.com
Longevity Risk
Longevity Game: www.nmfn.com
Source: The Northwestern Mutual Life Insurance Company/Northwestern Mutual, www.nwmf.com, 2007.
Welcome to the Longevity Game
Source: The Northwestern Mutual Life Insurance Company/Northwestern Mutual, www.nmfn.com, 2007.
Longevity Game: 75yr. old male
Source: The Northwestern Mutual Life Insurance Company/Northwestern Mutual, www.nmfn.com, 2007.
Longevity Game: 55yr. old male
Source: The Northwestern Mutual Life Insurance Company/Northwestern Mutual, www.nmfn.com, 2007.
Longevity Game: 55yr. old male
Source: The Northwestern Mutual Life Insurance Company/Northwestern Mutual, www.nmfn.com, 2007.
Longevity Game: 55yr. old male
Source: The Northwestern Mutual Life Insurance Company/Northwestern Mutual, www.nmfn.com, 2007.
Longevity Game: 55yr. old male
Source: The Northwestern Mutual Life Insurance Company/Northwestern Mutual, www.nmfn.com, 2007.
Longevity Game: 55yr. old male
Source: The Northwestern Mutual Life Insurance Company/Northwestern Mutual, www.nmfn.com, 2007.
Longevity Game: 55yr. old male
Source: The Northwestern Mutual Life Insurance Company/Northwestern Mutual, www.nmfn.com, 2007.
Longevity Game: 55yr. old male
Source: The Northwestern Mutual Life Insurance Company/Northwestern Mutual, www.nmfn.com, 2007.
Longevity Game: 55yr. old male
Source: The Northwestern Mutual Life Insurance Company/Northwestern Mutual, www.nmfn.com, 2007.
Inflation Risk
• Massive impact over time
• CPI vs. CPI-E
• Make it Personal
• CPI – (Your client’s name here)
• Personal situation
• Personal Advice
Market Risk
Solutions
Maslow’s Hierarchy of Needs
Safety/SecurityPhysical safety, economic security, freedom from threats
Ego (Esteem)Recognition from others, prestige and status
Social (Belonging)Acceptance, be part of a group, identification with others
Self-ActualizationRealization of potential, fulfillment
PhysiologicalPhysical survival needs – water, food, sleep, warmth
Retirement Income Solutions Pyramid
Safety/SecurityPhysical safety, economic security, freedom from threats
Ego (Esteem)Recognition from others, prestige and status
Social (Belonging)Acceptance, be part of a group, identification with others
Self-ActualizationRealization of potential, fulfillment
Basic ExpensesFood | House | Insurance | Taxes
CPP/OAS | Employer PensionPrivate Pension Annuity
Retirement Income Solutions Pyramid
Security ExpensesUnexpected Events & Expenses
Cash | Insurance(Life | Disability | CI | LTC)
Basic ExpensesFood | House | Insurance | Taxes
CPP/OAS | Employer PensionPrivate Pension Annuity
Ego (Esteem)Recognition from others, prestige and status
Social (Belonging)Acceptance, be part of a group, identification with others
Self-ActualizationRealization of potential, fulfillment
Retirement Income Solutions Pyramid
Social ExpensesHobbies | Travel | Gifts | Entertainment
Income from investments
Security ExpensesUnexpected Events & Expenses
Cash | Insurance(Life | Disability | CI | LTC)
Basic ExpensesFood | House | Insurance | Taxes
CPP/OAS | Employer PensionPrivate Pension Annuity
Ego (Esteem)Recognition from others, prestige and status
Self-ActualizationRealization of potential, fulfillment
Retirement Income Solutions Pyramid
Esteem ExpensesRecreational Property | Boat
Sale of investments
Social ExpensesHobbies | Travel | Gifts | Entertainment
Income from investments
Security ExpensesUnexpected Events & Expenses
Cash | Insurance(Life | Disability | CI | LTC)
Basic ExpensesFood | House | Insurance | Taxes
CPP/OAS | Employer PensionPrivate Pension Annuity
Self-ActualizationRealization of potential, fulfillment
Retirement Income Solutions Pyramid
Legacy ExpensesEstate | Philanthropy
Remaining investment,insurance proceeds
Esteem ExpensesRecreational Property | Boat
Sale of investments
Social ExpensesHobbies | Travel | Gifts | Entertainment
Income from investments
Security ExpensesUnexpected Events & Expenses
Cash | Insurance(Life | Disability | CI | LTC)
Basic ExpensesFood | House | Insurance | Taxes
CPP/OAS | Employer PensionPrivate Pension Annuity
Retirement Income Solutions Pyramid
Income Solutions
• The Boomer Century, Richard Croker
• Turning Silver to Gold, Mary Furlong
• Advising Mature Clients, Neal Cutler
• Future Perfect, David Bond
• www.nmfn.com
• www.ci.com
• Your CI Wholesaler
• www.livingto100.com
Resources
www.ci.com/PD
Please email pd@ci.comif you have any questions or concerns.
Thank you
DisclaimerAll charts and illustrations in this guide are for illustrative purposes only. They are not intended to predict or project investment results.
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